Schwab’s Share Price Falls 5% After Top Analyst Lowers Rating

Shares of San Francisco-based Charles Schwab Corp., the No. 1 online broker, fell 5% after Morgan Stanley Dean Witter analyst Henry McVey lowered his rating on the stock, as concern that a slowing economy and two years of record growth make the stock less appealing.

Schwab fell $1.38 to $27.56. The company gained 11% in 2000, compared with rivals E Trade Group Inc. and Ameritrade Holdings Corp., which fell 72% and 68%, respectively.

“We not only see risks to both the company’s earnings and PE multiple as we return to a more normalized environment, but are also concerned that a weakening economy will affect flows/assets at Schwab,” McVey, who was ranked the No. 1 financial services analyst by Institutional Investor magazine, wrote in a note to clients.

McVey said he expects larger financial organizations that serve institutions rather than individuals to perform better than retail brokers like Schwab.

Morgan Stanley also reduced its full year 2001 profit estimates to 59 cents a share from 66 cents a share. In the past six weeks, McVey has lowered 2001 estimates for Schwab three times and by 14 cents.

“Within the retail brokerage area, we continue to believe that old economy distributors, particularly those with a stronger advice platform, will provide investors with the most upside in the coming quarters.”

Thirteen analysts rate Schwab “buy” and nine rate it “hold,” according to Bloomberg data. The average estimate of 19 analysts tracked by First Call/Thomson Financial is 12 cents a share.